As stated in part 1 of the third quarter investment review I will now discuss the offer from Fairfax Financial Holdings (Fairfax) to take-over Blackberry (NASDAQ:BBRY). Most people are familiar with Blackberry, Blackberry has been credited for introducing smartphones to the world. Unfortunately has the company lost their edge since the introduction of the iPhone and the Android platform. Their market share has become negligible and even the Windows Phone platform has surpassed them.
Nevertheless has Fairfax made an offer for Blackberry as seen in the tweet below:

https://twitter.com/jsgvanduijnblog/status/382247351923929088

Some details from the press release are that:

Blackberry will be subject of due diligence which is expected to be complete by November 4, 2013.

Blackberry is free to negotiate and agree to another offer for the company, but has to pay Fairfax $0.30 or $0.50 per share in case such an offer is made and executed.

Fairfax can withdraw or lower their offer for Blackberry without any consequences.

To be honest, I am not really comfortable with investing in technology. Yesterday’s hero’s like Blackberry but also Nokia, Palm and Motorola are a shim of what they once were. If at their peak, you thought they still will be the giants of the mobile phone world in 10 years time, you were quite wrong. Maybe it will be different for Apple and Samsung but I am not sure about that. For me, technology and especially the mobile phone sector is outside my circle of competence.

But that doesn’t mean others have a wider circle of competence where technology is within that circle. Maybe the investment committee within Fairfax is still completely sure they will make a lot of money with their investment in Blackberry. It is possible, but their actions result in the fact that the investors in Fairfax (including me) also invest in Blackberry. Now, is that a problem for me?

I have several investments where the key figures made investments in sectors where my knowledge is negligible. Examples are the investments of Leucadia in Jefferies (investment banking) and Berkshire Hathaway in Burlington Northern Santa Fe (trains), Bank of America (banks) and IBM (technology). The key here is that I invested in people or companies that have a record of making money for their shareholders and also have the right incentive to make money for their shareholders in the future. In my opinion is this the case for Leucadia, Berkshire and Fairfax. So, even though I can’t predict the future of Blackberry, I trust Prem Watsa and his team at Fairfax to do the right thing with my money.

Apart from the fact that Fairfax can withdraw or lower their bid without any consequences are there other comforting conditions:

Fairfax has no plans to put in another penny beyond the company’s stake in Blackberry

The stake of Blackberry is worth approximately 5% of Fairfax equity. They didn’t bet the house on this one.

Results update

The results of one quarter aren’t really a big deal in the long run. In the short run, though, you can see a lot of fluctuations and the third quarter are a great example in that respect. Although my YTD performance decreased from 16.72% to 13.68%, the relative performance was much worse. My outperformance (+3.39%) of the S&P 500 changed into an underperformance (-4.3%) and my outperformance of the AEX decreased from 16.17% to 4.31%. This is not only the result of an underperformance of my portfolio though. The EUR/USD played its part with an appreciation of the Euro by approximately 4%.

Below the portfolio as of 30 September 2013 and the performance of the portfolio until 30 September 2013. To see the tables from last quarter, click here.

Click on table for larger view

Portfolio
Performance
Extra information:

The Portfolio (1) is denominated in Euros. Transaction costs, custody fees (bewaarloon) and dividends are when necessary included in the Annual Percentage Change. (Dividend tax is included in full years (2010 to 2012)).

The AEX (2) is a stock market index composed of Dutch companies that trade on Euronext Amsterdam. The Annual Percentage Change is calculated without taking the dividends of the current year in account.

The S&P 500 (3) is a stock market index based on the market capitalizations of 500 large companies whose common stock is publicly traded on the NYSE. The Annual Percentage Change is calculated without taking the dividends of the current year in account.

In calculating the Compounded Annual Gain is the current year considered as completed.

Since 14 May 2012 the currency risk isn’t hedged anymore. This means that currency fluctuations can significantly influence the performance in the short term. To show how the currency fluctuated during a certain period, an extra column is added with the fluctuations since 14 May 2012. A decline indicates that the US dollar has become stronger against the Euro and vice versa.